Opt-Out Plan

DEFINITION of 'Opt-Out Plan'

A type of 401(k) plan that automatically enrolls the employees of a company to save for their retirement. Eligible employees of a company with this policy are enrolled in the plan at a default contribution rate, usually around 3% of wages, and funds are directed into a default allocation. Employees can change the terms of the plan or opt out completely if they don't want to participate. This differs from a typical 401(k) in that retirement savings will continue to accumulate without any action from the participant.

Also known as an "automatic 401(k)".

BREAKING DOWN 'Opt-Out Plan'

Due to the complexity of some 401(k) forms and the stress of allocating the funds, some people may choose not to participate in a plan at all. An opt-out plan does this work for the employee, while still allowing him or her to change the terms as needed.

RELATED TERMS
  1. Auto Enrollment Plan

    An employer’s decision to sign employees up to have a percentage ...
  2. 401(k) Plan

    A qualified plan established by employers to which eligible employees ...
  3. Thrift Savings Plan - TSP

    A retirement savings plan created by the Federal Employee's Retirement ...
  4. Qualified Retirement Plan

    A plan that meets requirements of the Internal Revenue Code and ...
  5. Corporate Pension Plan

    A formal arrangement between a company and its employees - or ...
  6. Tax-Sheltered Annuity

    A type of annuity that allows an employee to make contributions ...
Related Articles
  1. Financial Advisor

    Top 401(k) Shortcomings: What to Know

    Many 401(k) plans are riddled with flaws that can impede retirement savers in many ways. Here are ten of the most common imperfections.
  2. Retirement

    Why Auto-Enrollment Will Save Your Retirement

    Savers need all the help they can get, even if it amounts to an offer they can't refuse. That's why the biggest improvement to 401(k)s is auto-enrollment.
  3. Trading

    401(k): An Accidental Solution To The Retirement Problem

    The 401(k) is often a poor substitute for the defined-benefit plans it replaced, but there are steps you can take to make yours better.
  4. Retirement

    Voluntary 401(k) Contributions: A Thing Of The Past?

    Contributing to your retirement plan may no longer be voluntary, but automatic enrollment has a number of benefits.
  5. Retirement

    The Basics Of A 401(k) Retirement Plan

    This plan has become one of the most popular retirement options. Find out why.
  6. Retirement

    This Is Why Your Employer Should Offer a 401(k)

    Understand the unique benefits that come with a small business offering a retirement savings plan such as a 401(k) to current and future employees.
  7. Retirement

    10 Providers With 401(k) Plans for Small Employers

    If you're a small business that has steered clear of a 401(k) plan for your employees, find out how these providers can make it easier.
  8. Retirement

    Is Your 401(k) Administrator Competent?

    The more that employees know about their employee 401(k) plans, the better. But what doesn't your administrator know?
  9. Retirement

    401(k) Investment Policy Statement: An Example

    Here's what a 401(k) investment policy statement should look like.
  10. Financial Advisor

    Which 401(k) Plan is Right for You?

    An overview of the different types of 401(k) plans and how to choose the right one.
RELATED FAQS
  1. What is the difference between a 401(k) plan and a 457 plan?

    Discover how 401(k) plans are privately offered employee retirement plans, while 457 plans are typically available to public ... Read Answer >>
  2. What's the difference between a 401(k) and a pension plan?

    Discern the differences between 401(k) plans, in which employees assume the market risk, and pension plans, in which the ... Read Answer >>
  3. What rate of return should I expect on my 401(k)?

    Learn what factors affect your 401(k) performance, and understand what a typical rate of return is for employer-sponsored ... Read Answer >>
  4. What is the best retirement plan option for a physician with her own practice, employees ...

    It is very unlikely that you will find a qualified plan or an IRA-based plan that will allow the employer to exclude other ... Read Answer >>
  5. Why were 401(k) plans created?

    Discover why consultant Ted Benna created 401(k) plans after noticing the Revenue Act of 1978 could be used to set up simple, ... Read Answer >>
  6. How does an employer benefit from a 401(k) matching plan?

    A 401(k) is a type of qualified retirement plan created by employers, where an employee deposits money into a retirement ... Read Answer >>
Hot Definitions
  1. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  2. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  3. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  4. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  5. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  6. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
Trading Center